Stamford firm creates trading platform for renewable energy certs

Tim Loh

Published 1:00 am, Sunday, March 23, 2014

Naeem Hukkawala, and Kapil Mohindra are the co-founders of Skystream Markets. The company is a 5-year-old startup that facilitates trading in the renewable-energy and environmental markets, they are photographed in their Stamford, Conn. office on Monday March 3, 2014.
Photo: Dru Nadler

Naeem Hukkawala, and Kapil Mohindra are the co-founders of...

Kapil Mohindra and Naeem Hukkawala are the co-founders of Skystream Markets. The company is a 5-year-old startup that facilitates trading in the renewable-energy and environmental markets, they are photographed in their Stamford, Conn. office on Monday March 3, 2014.
Photo: Dru Nadler

Kapil Mohindra and Naeem Hukkawala are the co-founders of Skystream...

STAMFORD -- Across the country, people are putting solar panels on rooftops. Wind farms are getting erected. Geothermal energy is being harnessed out West.

To some, the future is increasingly green. It could be doubly so for one Wall Street newcomer.

"It's a false distinction that things that are good for the environment are bad for business," says Kapil Mohindra, seated in his sparse Stamford office one morning.

His business partner, Naeem Hukkawala, nods his head. "I consider myself an environmentalist," he says. "But at the core, we recognize a good business opportunity."

Mohindra and Hukkawala are co-founders of Skystream Markets, a Stamford-based startup that's trying to become the go-to trading platform for renewable energy certificates, or RECs. The certificates are proof that a megawatt-hour of renewable energy has been generated. They can be bought and sold by everyone from solar-farm operators to commodity speculators to utilities.

The market dates back to the mid-'90s, but it's experiencing rapid growth now as the 29 states -- and Washington, D.C. -- that currently require power companies to use renewable energy ratchet up how much electricity they want to come from those sources. In turn, the expanding REC market is creating a need for skilled professionals to facilitate trading.

"RECs were a very opaque, inefficient market," says Patrick O'Neill, who worked for the state's Clean Energy Fund before switching to the quasi-governmental financing outfit Connecticut Innovations -- which has invested $1.5 million in Skystream since 2012.

O'Neill, a director of investments at CI, recalls how hard it was to judge whether the Clean Energy Fund had good prices for its stable of RECs. "There wasn't a reliable price mechanism," he says. "That creates a lot of inefficiency."

Looking for a niche

For Mohindra, 39, and Hukkawala, 42, that created a rare opportunity. They both came of age dreaming of launching a business.

Mohindra started a tutoring company at his Boston high school after scoring highly on the SAT exam. His father was an entrepreneur, and so were his grandfather and great-grandfather. When he got to Boston University, he founded an entrepreneurial society that grew to have 30 members, he says. He started a business that helped local shops advertise in student publications.

After about a decade on Wall Street, the two finally crossed paths in 2004 at Creditex, a startup that would become the first to launch electronic trading for a derivative that was then about to boom: credit-default swaps.

Their time at Creditex, they say, was immersion training in both startup culture and how to set up an electronic trading platform from scratch. So in `08 -- after both Creditex and the company Hukkawala had moved on to were bought -- they decided to launch their own business. They wanted it to be in renewable energy, and after ruling out a few ideas they came across the growing, relatively undeveloped market for RECs.

"This was too much of a perfect storm of opportunity to pass up," Hukkawala recalls.

Growing market

Theoretically, RECs make for more liquid renewable energy markets, both increasing competition and lowering costs. They allow a Connecticut business, for instance, to buy the attributes of the lowest-cost renewable energy available, even if it's generated in Arizona.

The concept was created in California in the mid '90s. The market for RECs rapidly expanded over the past decade. Between 2006 and 2012, states that have renewable portfolio standards increased the total mandate for clean power to 85 million megawatt-hours from 11 million, according to the National Renewable Energy Lab.

And while the RECs' generators and end-users -- for instance, solar-farm operators and utilities, respectively -- have increased their market activity, they're not alone. There's also been an influx of speculators, such as energy traders who have long operated in the crude oil and natural gas markets, Mohindra says.

Profit motive

Hoping to become the primary platform for the market, Mohinda and Hukkawala launched Skystream in 2009.

Today, they have 16 employees between their Stamford headquarters at 6 Landmark Square and their offices in New York and Boston. They recently closed a $4 million round of fundraising that included as backers Connecticut Innovations, Avon-based Ironwood Capital, Clean Energy Venture Group and Cambridge, Mass.-based Launch Capital.

Since 2012, when the company's trading platform and brokerage unit launched, Skystream has transacted with over 125 counterparties, the founders say -- about half of which are deliverers of power and subject to renewable electricity standards. They have about 80 customers on their e-trading platform.

Ultimately, they want to expand Skystream into environmental markets such as the Regional Greenhouse Gas Initiative and the California Carbon Market. But for now, their top priority is securing a larger share of the REC trade and attaining profitability. They don't invest in the markets themselves and say they don't plan to cater to individual investors.

So, are they actually environmentalists?

"We do believe that having a good environment, and the obligation to give the environment to future generations in the same or better condition than we received it, is very important," Mohindra says.

"As far as our business lines up with that value, we are environmentally conscious."